SEC halts registrations for digital tokens Ducat and Locke

The US Securities and Exchange Commission (SEC) has halted registration for two digital tokens offered by Wyoming-based American Cryptofed DAO, accusing the company of providing misleading information to investors in regulatory filings.

The SEC said in a statement that American Cryptofed “filed a materially deficient and misleading” form when it sought to register the tokens, known as “Ducat” and “Locke,” as equity securities.

The disclosures did not contain required information about both the tokens and the company, and contained materially misleading statements, the SEC said.

The SEC alleged the company’s form left out the required information about the company’s business, management and financial condition, among other omissions, and also gave inconsistent statements about whether the tokens are securities.

American Cryptofed describes itself on its website as “the first Wyoming decentralized autonomous organization”.

The SEC and other regulators have increasingly been cracking down on the cryptocurrency industry under Democratic leadership.

SEC chair Gary Gensler has said the agency is examining cryptocurrencies in a number of areas and has described the crypto world as a “Wild West” which carries potential investor risk.

Earlier this year, the Federal Bureau of Investigation (FBI) warned bitcoin and cryptocurrency buyers, exchanges and payment platforms over the growing threat of criminals looking to steal bitcoin and crypto-assets.

There are also growing signs that the Bank of England is to seek to tackle the use of crypto-assets amid fears they pose a stability risk to the financial system.

Sir Jon Cunliffe, the bank’s deputy governor Financial Stability, said last month that the bank was aware of the risks the use of crypto-assets posed and was examining the creation of guidelines for its use by business.

Responding to the SEC proceedings, Marian Orr, CEO of American CryptoFed  said:

“In a letter to the SEC dated 12 October, 2021, we rebutted point by point the deficiencies raised by the SEC. The purported ‘deficiencies’ the SEC referred to were the lack of attributes inherent to securities. These are attributes that the two tokens (Locke and Ducat) of a decentralized blockchain-based CryptoFed DAO monetary system will never have. The SEC refused to respond to our rebuttal, although we repeatedly asked for their written response.”

“If the SEC is unready to make a declaration that CryptoFed’s two tokens (Locke and Ducate) are not securities, to meet the spirit of securities law transparency and disclosure, we shall argue SEC should allow our Form 10 filing to become effective in time so that we may continue disclosing material and substantial information to the SEC, related parties and the general public.”

“We look forward to future communications with the Commissioners within the specified time frame, including a public hearing.”

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